Almost half of all UK gas consumers – 10 million households – have switched
supplier, according to the energy regulator Ofgem. New research by Dr
Monica Giulietti and Professors Catherine Waddams Price and Michael
Waterson, published in the October 2005 issue of the Economic Journal
reveals why have some consumers switched and others not:
• Among the most important factors is the consumer’s experience in
switching suppliers in other areas, such as car insurance, house
insurance and telephone supplier. Each of these factors makes you
about 10% more likely to switch.
• Unsurprisingly, you are more likely to have switched if price is of prime
importance and less likely if you think the reputation of British Gas is a
major factor or if you feel they are likely to respond to competitors’
moves.
• It is a myth that old people are less likely to switch. They are less likely
to know you can switch, but so long as they are aware, they switch just
like everyone else.
• Your income doesn’t matter much either: both poor and rich change
supplier.
• Nor does the way in which you pay your bill, for example, prepayment
meter users are just as likely to switch supplier (so long as they know
they can).
The researchers also find that because a sizeable group of people are
unlikely to switch even for significant price differentials, it would be worthwhile
for British Gas to maintain gas prices significantly above competitors for years
to come, by around £100 a year. In a pessimistic scenario where British Gas
maintains prices substantially above competitors, consumers would lose out
on average through the competitive process.
Persuading consumers to switch also incurs costs for suppliers. So although
the process of introducing competition into domestic energy supply has not
been the disaster some predicted, neither is it clear that it has worked as well
as optimists thought.
The study, carried out at the Universities of Aston, East Anglia and Warwick
University with money awarded to Warwick by the Leverhulme Trust,
questioned a carefully selected sample of households in the early years of
gas supply competition.
It remains to be seen whether the results are similar now, in particular, during
the recent very rapid increases in energy prices most consumers are
experiencing. British Gas, for example, has announced its third price rise in
two years.
To this end, researchers both at Warwick and at the University of East
Anglia’s Centre for Competition Policy are currently investigating aspects of
behaviour in the UK energy market, both in terms of suppliers’ behaviour and
consumer choices.
ENDS
Notes for editors: ‘Consumer Choice and Competition Policy: A Study of UK
Energy Markets’ by Monica Giulietti, Catherine Waddams Price and Michael
Waterson is published in the October 2005 issue of the Economic Journal.
Monica Giulietti is at Aston Business School. Catherine Waddams Price is at
the ESRC Centre for Competition Policy at the University of East Anglia.
Michael Waterson is at the University of Warwick.
For further information: contact Monica Giulietti on 0121-204-3107 (email:
m.giulietti@aston.ac.uk); Catherine Waddams Price on 07989-541299 (email:
c.waddams@uea.ac.uk); Michael Waterson 02476-523427 (email:
Michael.Waterson@warwick.ac.uk); or RES Media Consultant Romesh
Vaitilingam on 0117-983-9770 or 07768-661095 (email:
romesh@compuserve.com).